7/22/2002 @ 12:00AM

Paper-Fat Profits

215. STORA ENSO  FOREST PRODUCTS

The advertising slowdown that started in 2001 took its toll on Stora Enso, the Helsinki-based giant of the paper industry. Stora, which produces magazine paper, newsprint, fine paper, packaging boards and timber products, posted a 38% drop in profits last year, to $829 million. But a recovery may be in the works, says Deutsche Bankequity analyst Johannes Schulman.

Schulman notes that some paper buyers have been taking advantage of falling prices by adding to inventory. “That’s usually a good sign for the entire industry,” Schulman says. Based on consensus earnings forecasts from Thomson Financial/IBES, Stora is expected to post a 48% increase in 2003 earnings over its 2002 estimate, to $1.20 a share. Stora sells for 11 times its 2003 estimate.

When Stora acquired Consolidated Papers in 2000, it gained a long-sought-after foothold in North America, from where it now gets 18% of its paper capacity (81% still comes from Europe–mostly Finland and Sweden). It also became the world’s second-largest integrated paper company ($12.1 billion in revenues), just behind International Paper of the U.S. This size, says Deutsche Bank’s Schulman, allows Stora to find synergies and cut costs, two important advantages in a static industry.